The decade low yield of tobacco stocks can be clearly seen from our new interactive charts, which are embedded below. The chart shows the dividend yield of three tobacco stocks: Reynolds American (RAI), Philip Morris International (PM) and British American Tobacco (BTI).
In 2003, when the tobacco industry was threatened by another large litigation risk, the dividend yield of Reynolds American (RAI) was at 13%. In the market crash of 2008-2009, the yield was more than 10%. Today it is at a little above 5%. While 5% is high compared with the market average, only in 2005-2007 the yield was lower than its current value. We know what happened after 2007, the stock declined more than 30% in from 2008 to the first quarter of 2009.
The situation is even worse with Philip Morris International (PM) and British American Tobacco (BTI). The yields for both of them are at their historical lows.
Owning tobacco stocks has certainly been rewarding to investors. Besides generating nice dividends, the stock prices have also outperformed the market significantly since the last market peak in 2007. While the S&P500 is still below its peak, tobacco stocks have made new highs. See the price chart below for Reynolds American (RAI), Philip Morris International (PM) and British American Tobacco (BTI).
While everything has gone well, the valuations are at their highest level. See the historical P/E of these three companies below:
A historical high valuation is usually followed by a reversion to the mean.